Portfolio update – $CLP.L sold

I last wrote about Clear Leisure plc ($CLP.L) in my 2014 portfolio review, where I said that I had made a mistake investing in the company, but would hold onto it as it was quite an attractive risk/reward proposition. Yesterday the company posted a positive update, saying that it had 5 interested buyers in the Italian land holding, Mediapolis, that it has been trying to liquidate for a while. The stock was jumped on by momentum traders and was up 80% at one point. I took this opportunity to exit the position at 1.23p, some 45.7% below my buy price, but a much smaller loss than the position had been showing.

If the sale of Mediapolis goes through, then CLP will realise net assets of around 3p per share, so I may have made a mistake selling at only 1.23p here. But there are several reasons why I exited well below the NAV:

1. Management statements are unreliable

This company has a history of promising big but failing to deliver. It has been ‘close’ to selling Mediapolis for as long as I have been following the stock, yet time after time nothing happens. Its press releases are also very misleading in my opinion. They often state the ‘net equity’ of Mediapolis, implying it is the net asset value, yet it does not net out the debt associated with the land. This is actually one of the reasons I miscalculated the NAV of the company when I first reviewed it.

2. Mediapolis debt restructure

They have also announced that they will seek to convert the debt attached to the Mediapolis land into equity. Firstly I don’t see why this is necessary if they are close to a sale. Secondly, shareholders have no way of knowing whether the deal will be favorable to them, it could affect net asset value per share substantially and I don’t want to bear that risk.

3. The company doesn’t have cash to operate

A few weeks ago the company received a winding up petition as it has failed to pay its bills. It since claims to have managed to sell some assets to raise cash, but this is only a short term fix for the fact that the company has no money coming in and can’t afford to stay solvent without continual equity issues. The longer this liquidation takes, the more shareholders will be diluted.

In summary, I don’t have any faith that they are close to a liquidation of Mediapolis. I also know all too well on AIM that when share prices rise 80% in a couple of hours, they do not stay at that level. The peak usually occurs between 9am and 11am following a bullish update, and will likely be followed by a gradual decline back to where it was before ‘traders’ jumped on it. So I took the opportunity to exit at a high and cut my losses.

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